Cost Modeling for More Effective Services
Cost modeling is the process of evaluating financial data from accounting (general ledger and chart of accounts), IT budgets, budget management documents, and general ledger extracts. Data is collected, categorized, tiered, mapped, and allocated via cost models that fit the organization’s business priorities and operational models.
The goal of cost modeling is to provide the organization with a foundational, consistent understanding of the core services that IT offers. The costs associated with IT services are classified as fixed (influenced by standards) or variable (influenced by other factors, such as business process adherence). This allows organizations to describe and illustrate IT consumption by business function and individual workers, using fixed and variable costs, based upon credible allocations, rather than the more common revenue and/or headcount based allocations.
It also allows IT organizations to model their costs and efficiency against competitive influences such as outsourcers.